ethical issues in accounting and corporate governance b.v.raghunandan
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issues connected with financial reporting and corporate governanceTRANSCRIPT
Ethical Issues in Accounting & Corporate Governance
-B.V.Raghunandan, SVS College, Bantwal
National Conference,
St.Aloysius College, Mangalore
March 19, 2010
Ethical Issues
• Narrow Approach-Protection of Shareholders’ Interests
• Protection is proved to be a myth time and again
• Failure of All the Agencies and Bodies
• Quite a lot of academic discussion
Corporate Governors
• Promoters• Managers• Independent Directors• Other Directors• Rating Agencies• Stock Exchange• SEBI• Ministry of Finance• Auditors & ICAI
Promoters and Managers
• The main adversaries against shareholders’ interests
• Powers to appoint auditors, rating agency etc
• Manipulates the accounts under the guidance of the auditors
• Misguided for achieving short-term goals
Independent Directors & Other Directors
• Both SEBI and Ministry of Finance are fighting over the issue of number of independent directors rather than their role
• Many a time, related indirectly to promoters and managers, hence having a vested interest
• Denied access to sensitive financial information
Rating Agencies• Depends upon the promoter for
engagement• Existence of multiple rating agencies gives
the promoters and managers to go shopping for the desired rating
• Band wagon mentality (even after a scam breaks out, they continue to recommend the security of the company for investment)
• Claim ‘no access to extra information’
Stock Exchange
• Clause 49 of Listing Agreement• Trading in the securities in the market is its
main concern• Evinced no interest in financial reporting• Inspite of demutualisation, no serious
efforts are made even in stock price manipulation
• It leaves every matter of corporate governance to SEBI
Securities & Exchange Board of India
• More concerned with day-to day management
• Concentration is on securities trading in the stock market
• Lacks wisdom and works against the interest of the investors
• Should have a wing to scrutinise the financial reporting
Ministry of Finance
• Like any other Ministry• Locking the gates after the horses are
stolen• Inefficient and procedure-ridden• Subject to political lobbying• Shifting the blame to other regulatory
agencies
Legal Framework
• Clause 49 of Listing Agreement
• Companies Act
• SEBI Act
Possibility of Total Failure
• All the Regulations can be defeated
• International Accounting Firms are experts in violation
• Bandwagon Mentality• No Foolproof Method of
Evaluation• Even cash can be
manipulated
The Auditors• Depends upon the
Management to be appointed
• Guides the Management in Manipulation
• Acts against the interest of the shareholders
• PriceWaterHouse Cooper is involved as the Auditors in many scandal related companies
Nature of Accounting Standards
• Ever-changing• Deliberately made complex• Scope for creative accounting• Monopoly of ICAI in spite of NACAS• Vested interest of the members• Enforcers and Violators are the same
entity
Agenda for Clause 49• Role of Independent Directors• Government identifying and preparing a
database of independent Directors without any vested interest
• Independent Directors should be vested with the powers of appointing the Auditors
• Expanding the role of independent directors in financial reporting
• Academicians with accounting knowledge as independent directors
Agenda for Accounting Standards
• Based on the assumption that accounting is a passive function and not an active one
• Should be fairly fixed for a long period of time
• NACAS should be made powerful• CAs should be barred from being
members of NACAS• Academicians with no vested interest can
be made members of NACAS
Agenda for Accounting Profession
• Monopoly of CA for accounting and auditing must be done away with
• Members of ICWAI, ICSI and ICFAI must be eligible to audit the accounts
• Post-Graduation in Business Administration and Commerce with dedicated accounting and auditing knowledge should create accounting and auditing professionals
THANK YOU